A Tale Of Several Cities

Since the Meredith Whitney interview on 60 Minutes aired a little more than a week ago (see 60 Minutes Looks At "Day Of Reckoning" For Our Insolvent States) I have been paying closer attention to the plight of city, county and state governments whose resources are stretched to the breaking point.

I have had no trouble finding daily pieces about the travails of many US municipalities and states. Here's just a scatter shot of stories from around the nation which have run in just the past few days:

Vallejo, CA

http://www.commondreams.org/headline/2010/12/20-6

Every Vallejo man, woman, child & baby would have to fork over $1,500 each . . . just to cover the unfunded pension obligations at this moment. So the city declared bankruptcy in 2008.

Vallejo, a former US navy town near San Francisco, is still trying to emerge from the Chapter Nine bankruptcy protection it entered in 2008.

The city, now a symbol of distressed local finances, is still negotiating with the unions, which refused to accept a salary cut plan two years ago. Paul Dyson, an analyst with the Standard & Poor's credit agency, said Vallejo, which is mostly a dormitory town for Oakland or San Francisco employees, did not have enough local industry to sustain its finances and property tax - a major source of local income - plunged with the collapse of the real estate market. The S&P credit-rating agency has a C rating on the town - the lowest level.

With a population of about 120,000, Vallejo has $195m (£125m) of unfunded pension obligations and has to present a bankruptcy-exit plan to a Sacramento court by 18 January. Since 1937, 619 local US government bodies, mostly small utilities or districts, have filed for bankruptcy, Bloomberg News recently reported. US cities tend to default more than European municipalities as they usually rely on bonds issued to investors, which enter into a default if the creditor misses payments. European towns, by contrast, traditionally depend on bank loans and government bailouts.

San Francisco, CA

http://www.nytimes.com/2010/12/17/us/17bcbenefits.html?hp

Talk about kicking the can further down the road: Retirement healthcare needs of $4.4 BILLION and San Francisco has only put aside $9.7 Million, meaning, SF needs to find another $4.391 BILLION to set aside.

After months of delays, the San Francisco controller’s office announced Thursday that it expected the city to pay $4.4 billion to provide municipal retirees and their dependents with lifetime health benefits.

The city has set aside $9.7 million to cover the costs.

The estimate of San Francisco’s unmet health care liability has been closely watched by ratings agencies, labor unions and other groups concerned about the city’s long-term finances. Moody’s Investors Service downgraded San Francisco’s debt rating in November, citing the enormous retiree health-care obligations, among other factors.

The city has set aside $9.7 million to cover the costs.

The estimate of San Francisco’s unmet health care liability has been closely watched by ratings agencies, labor unions and other groups concerned about the city’s long-term finances. Moody’s Investors Service downgraded San Francisco’s debt rating in November, citing the enormous retiree health-care obligations, among other factors.

To put the $4.4 billion liability in perspective, San Francisco has borrowed $2.6 billion through general obligation bonds in its entire history.

Indiana

http://www.courier-journal.com/article/20101227/NEWS02/312270043/-1/rss

Indiana seeks to pass a new state law allowing the State of Indiana to take over insolvent municipalities and then cut their budget, renegotiate labor contracts, and approve or veto contracts, expenses, loans and hiring.

A plan backed by Gov. Mitch Daniels would allow local governments in Indiana to ask for a state takeover and declare bankruptcy if necessary. Daniels says he hopes there won't be many local governments that seek bankruptcy, but says the state needs to have the law clarified and on standby in case it happens.

Republican state Sen. Ed Charbonneau of Valparaiso is sponsoring a bill to outline the procedure. His bill would allow a local government in financial trouble to ask the Indiana Distressed Unit Appeals Board to appoint an “emergency manager” to run the government.

The emergency manager would have the power to cut the budget, renegotiate labor contracts, and approve or veto contracts, expenses, loans and hiring.

The bill states that if the emergency manager can't turn around the local government's finances, the unit would be allowed to seek federal bankruptcy protection.

The State Board of Accounts in recent audits has questioned the abilities of the city governments in Gary and Lake Station to “continue as a going concern” because of continued high city spending despite significantly reduced city revenues because of statewide property tax caps.

Hamtramck,MI

http://www.nytimes.com/2010/12/28/us/28city.html?hp

Another old working class town, near death, begs the State of Michigan to allow it to declare bankruptcy.

HAMTRAMCK, Mich. — Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.

This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road money runs out, the city has set nothing aside to plow streets.

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stop gap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.” (Note: Rock added the emphasis in this paragraph with Italics and Bold.)

Houston, TX

http://online.wsj.com/article/SB10001424052748703548604576038080723678202.html?mod=WSJ_hp_mostpop_read

Houston is so strapped that it is attempting to hit up non-profits to help cover city infrastructure and services . . .

The issue is on display in Houston, where some flood-prone roads are in such disrepair that signs warn drivers, "Turn around, don't drown."

Houston's taxpayers in November narrowly voted to adopt a "drainage fee" to raise at least $125 million a year toward the cost of improving roads and storm-water systems. The city will charge fees to property owners, and it won't grant exceptions to churches, schools and charities.

The city has been tightening its budget. "We're cutting up the city's credit cards," says Mayor Annise Parker. "Everyone who contributes to drainage issues has to share in the cost of correcting those issues."

A number of groups—including schools, businesses, churches and senior citizens—are demanding exemptions. "We'll defeat this," says David Welch, of the Houston Area Pastor's Council, who plans to lobby state legislators in January. "This is really a tax. It is the first time that churches would not be exempt from property taxes," he says. Some opponents have filed suit claiming the ballot wording was misleading.

At a group called the National Council of Nonprofits, Tim Delaney, chief executive, says, "Governments are taking their public burdens and putting them on the backs of nonprofits, at a time when the demand for our services is skyrocketing."

These are just a few stories in the past few days which paint a very bleak picture of what James Kunstler would call "The Long Emergency" during Peak Oil times.

To neglect what is and what you do not want to see is Denial.

Denial was high during the run up to the Dot Com Crash, the Housing Crash and the Credit Bubble Crash.

Today, the stock markets have been on a tremendous bull run built on noticeably low volume. In a time of unaccountable and un-regulated derivatives trading (much of the newer bets funded by cheap money given to the Too Big To Fail boys)much of what is happening in the US stock markets is simply "churn" trades between HFT Bots from different firms, with their algorithmic programmers trying to outwit each other with daily tweaks to their programs, programs which are now, I fear, suckering in the last of the "sheeple" who follow investing newsletters and services built on the premise that Wall Street is not a casino, but Capitalism at its altruistic best.

I have a very bad feeling that in the next 18 months, as more governments big and small in the USA ask for bankruptcy protection, more pensioners and soon to be pensioners will wake up and realize they no longer have a pension. The effect on Baby Boomers realizing they have been wiped out by false promises by corrupt politicians will create an anger and panic which will spill over to the markets as Boomers head for the exits with what remaining capital they might have left in their paltry "retirement savings".

Lastly, let's look at one more frightening and sobering statistical read just published by MyBudget360. The title alone sends chills down any middle class taxpayer's spine. You will want to read the whole post and look over all the graphs and charts under the title "Retirement account fantasy and middle class erosion – 1 out of 3 Americans has zero dollars in a retirement account. From 1950 to 1989 top 1 percent earned roughly 7 to 8 percent of nationwide income. Today it is inching closer to 20 percent resembling pre-Great Depression levels"